Speculative fever and casino economies

The monster which confronts the United States and its speculative “clones”, including the United Kingdom and Australia as examples, does not confront China, India, the Tigers and their "clones" in the same way or probably to the same extent.

That does not mean that turmoil in the United States group will not have an impact and cause some turmoil in China, India and their "clones".

It certainly will; but the nature of the impact and turmoil there will call for a different range of remedial measures. They will call for some deep and fundamental adjustments but they will not necessarily be of the same comprehensive kind as those required in the United States and its "clones".

That raises a crucial issue of what we must understand to be required for the latter group of countries: a little fiddling around the margins of the economy and the financial "system" will not be enough. Extra "liquidity" from the Fed, some more tax cuts by the Bush Administration will not be enough. That will indeed only be fiddling while the speculative, debt-ridden economies see more and more of what they had, and what they still want to keep, go up in flames.

What we must rather recognise is that we must return to some "true" valuation of real investment - the sort of real investment in the production of goods and services that we had in the period between 1945 and 1969.

We must see again the value of real private and PUBLIC investment - which to far too great an extent has been abdicated to others. Real fixed-capital investment is the great engine of growth of income, wealth and employment. It always has been and always will be.

We must see the value of re-establishing stability in markets - for goods, services, currencies, credit and all the rest - which will encourage and stimulate real as distinct from "ownership" and speculative investment.

We must avoid the volatility of recent years on which speculation breeds and the real economy is diminished or destroyed.

These are huge requirements. They call for a return to the attitudes of mind that we had at the end of World War II.

Then we aimed, through national and global measures, to co-operate in establishing stable, growth economies, with full employment, which would reinforce policies of social, political and strategic stability around the world.

As the "Great Bust" which threatens us at the moment develops, we will see ever more clearly the need to re-create these attitudes and to formulate practical economic and financial policies which will go far beyond the "helicopter drops" of Bernanke and Bush and lead us towards a true recovery.

It won't be easy and it will take time. There are several years of struggle ahead. We will need to ameliorate conditions for those hit hardest during those years. We may hope that the current "Great Bust" will not last as long as the Great Depression did. We may hope that it will not result in - or help in the slide to - the catastrophe of world war that the Great Depression did.

But, if we are to realise those hopes, we must accept the imperative for transformation of the economies and financial "systems" which we - the United States and its "clones" - have at the moment.

Short-term expedients will not do.